Ickenham Travel Group Limited v Tiffin Green Limited

An auditor may be in breach of duty yet cause no recoverable loss. A claimant must prove both that the relevant transaction caused loss and that the loss would not have occurred but for the breach. A provisional offer for an unlisted business does not establish market value where the proposed buyer was no longer willing to proceed and the evidence is speculative. Where the same financial problem would have required substantially the same remedial steps when the audit should have identified it, later losses are not caused by the audit breach.

The claimant travel agency sued its former auditors in contract and tort. It alleged that negligent audits failed to identify a substantial understatement of trade creditors in its consumer-travel division. The claimant said that the resulting regulatory and funding difficulties required it to sell its business-travel division below value and incur professional fees.

The court found that the audits were seriously defective and breached the auditors’ duties. The principal issues were whether the sale caused loss, whether the breach factually caused the claimed losses, whether the losses fell within the scope of duty, whether the pleadings were adequate, and whether part of the claim was time-barred.

1. Judgment for the defendant. The claimant failed to prove loss on the sale of the business-travel division and failed to prove factual causation. The claim therefore failed.
2. The value of an unlisted business is ultimately the price a willing buyer would pay to a willing seller, becoming certain when a binding agreement is signed. The provisional offer relied upon was not reliable evidence of value. The proposed buyer had withdrawn from the transaction before learning of the accounting irregularities, and the possibility of completion was speculative and below the threshold of a real and substantial chance identified in Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 and Mount v Barker Austin [1998] PNLR 493.
3. The price ultimately paid by Reed & Mackay represented market value. The reduction in the upfront price reflected the business-travel division’s working-capital position, not the understatement in the consumer-travel division. The claimant suffered no loss on the sale.
4. The parties agreed that the ordinary but-for test applied. The claimant had to show that, if the understatement had been identified in 2014, it would have taken different steps and thereby avoided the claimed losses. The evidence showed that the regulatory authority would probably have required funding in 2014, as it did in 2019, and the claimant did not prove that alternative funding or a more advantageous sale would have been available.
5. The same conclusion applied to the claimed professional fees. The claimant did not prove that the advisers would not have been engaged, or that the fees would have been lower, had the understatement been discovered earlier.
6. The court did not need to decide legal causation or scope of duty. For completeness, the purpose-based approach in Manchester Building Society v Grant Thornton UK LLP [2022] AC 788 appeared capable of encompassing losses caused by steps required to maintain regulatory approval, assuming such losses had been proved.
7. The pleadings adequately identified negligent failure to discover a substantial accounting or record-keeping failure, even though the precise underlying cause remained unknown.
8. The contractual claim concerning the 2014 audit was time-barred. The tort claim was brought within the extended period under section 14A of the Limitation Act 1980, because the claimant acquired the necessary knowledge in February 2019, although it had a right to sue when the audit opinion was issued on 24 December 2014.